What's Happening?
The government has approved the 2026 state budget, setting total expenditures at 662 billion shekels, marking an increase of 40 billion from the original proposal. This approval follows a resolution between the Finance Ministry and Defense Ministry over the defense
allocation, which was set at 112 billion shekels. This figure is 30 billion shekels below the defense establishment's initial demand but 20 billion above the Treasury's initial proposal. The budget approval also includes a contentious dairy reform, which opens the sector to increased imports and ends the quota system, despite opposition from dairy farmers and the Agriculture Ministry. Additionally, the budget raises the tax-free threshold for online imports from 75 dollars to 150 dollars, despite opposition from manufacturers and business groups.
Why It's Important?
The approval of the 2026 state budget is significant as it reflects the government's ability to navigate complex negotiations and reach a consensus on critical issues such as defense funding. The budget's provisions, including the dairy reform and changes to import tax thresholds, have broad implications for various sectors. The dairy reform could lead to increased competition and potential closures within the dairy industry, while the import tax changes may affect domestic manufacturers. The budget also aims to support economic growth without increasing taxes, which could have positive implications for the broader economy. The allocation for public transportation and education highlights the government's focus on infrastructure and human capital development.
What's Next?
The implementation of the 2026 budget will likely involve monitoring the impact of the dairy reform and import tax changes on the respective industries. Stakeholders such as dairy farmers and manufacturers may continue to express concerns and seek adjustments. The government will also need to manage the budget deficit, which has been set at 3.9 percent, higher than initially projected. The focus will be on ensuring that the budget supports economic growth while maintaining fiscal responsibility. Additionally, the government may face pressure to address the housing crisis, as indicated by the softened housing and planning reforms.
